Servitization

The figure hereafter illustrates the change of focus when tangible products are sold as services i.e. servitized or intangible services are productized. When discussing about the total offering and productization related at some point the discussion goes into services. Often additional services around the core product. This is typically the starting point for servitization. In real life there are several examples of Servitization. Some of them are clearly already Product Service Systems which means that he fundamental starting point in design of the offering has been customer needs. Examples of servitized products:

·       Rols Royce power by hour

·       Gasum monthly payment for unlimited amount of gas for driving

·       Tammermatic sales of car washes instead of washing machines

In fact, from these three, Gasum is clearly a servitized product but the other two examples are more close to true Product Service Systems (PSS). It is anyway difficult to separate Servitization and PSS. Actually there are researchers who claim these two things are the same and the naming is the only differentiator. The operation of those true PSS require high technical skills and understanding of the customer needs and requirements as well as knowing the features of own offering in detail.

Figure 1 Change of focus

Servitization of intangible and tangible goods

Software (SW) products are often sold as a service. Pricing is a monthly fee, or some annual license, pay per use or pay per use. Whatever the metrics, in SW world it is common to approach the SW product as a service – I pay for the company A so that they let me use their wonderful product which enables or helps me to do my business or my personal tasks. People are familiar for this way of doing business. It is also logical because SW tends to be develop continuously with updates and bug fixes. For a long time companies have been talking about SaaS – Software as a Service model. Most likely there is some new nice refreshed word describing that today. Servitized offering of Hardware (HW) i.e. tangible products is not that common, especially in consumer businesses. There are rental services and selling the equipment in lease. Those are servitized business models, but not that common anyway. Sharing economy is a raising trend but yet it is more common to buy the ownership of HW goods than share them. When taking a look at the corporate finance books and how they teach the subject typically in schools or universities, it is relatively common subject to handle payback calculation of investments. This is related to traditional way of buying HW equipment for production of other goods. It is relatively deep in the business minds that equipment are investments rather than anything else, i.e. buying the operation or output of the equipment. However, it seems that the trend is to increase the servitized model of purchasing the equipment or even PSS in order to gain the benefits and sharing the risk of the investment. Time will show us how it will work.

Drivers of the servitization

Drivers for changing the model for servitization are often rooted to market demand. Customers and competition drives into creative models of doing the business. It is also commonly known that the one closer to customer company core business most likely win the next deal as well. Sercives are often good way to get closer and to really understand and learn customer daily pain. Servitized models and PSS can act as competitive advantage if carefully designed. It seems that it is not the prodcts that define the leadership in the markets, rather the competencies. Who takes the leadership position as a true subject matter expert. Servitized models and PSS are also hard to copy and pricing can turn to be incomparable for customer – the root for differentiating in competition. Equipment manufacturers are willing to relocate themselves as more valuable in food chain.

PSS and servitization

As mentioned hereabove the line between servitized business model and true PSS is so thin that some researchers claim it does not even exist. The ones that say they are different justifies the difference with the fundamental starting point. Example, servitized model would be sell equipment with a lease where customer pays monthly fee or such. Still it is transaction based business and has nothing to do with the operation or performance of the equipment. PSS model for the same equipment would be e.g to sell moved tons or operating hours with full service, customer paying only for the tons or hours or such. In order to make latter successful for both the equipment manufacturer really needs to understand the customer business and have that as a starting point for design. Once a company achieves the position as known PSS producer, they are really strong in competition – probably mostly because everyone knows they must understand the customer business well and that is worth money.

Author is Sales Director at Helmee Imaging

Feel free to contact for further discussions about PSS, Sportsdata business or automated visual inspection of high gloss surfaces. Find my contacts from company page or Linkedin.